Expanding Energy Production and Exports Is Good for Economy, Small Business | Commentary
Considerable attention on Capitol Hill has been given to America’s natural gas potential in the past month, yet the Department of Energy continues to slow-walk liquefied natural gas export permits. Despite the recent DOE decision to grant approval of a single application for a LNG export facility in Freeport, Texas, more than 20 export applications remain in limbo.
Given the impending decision on exports, an analysis of the recent history of the U.S. natural gas industry is warranted. Important factors to consider are the small business growth and the job creation spurred by recent production of natural gas.
Less than five years ago, policymakers were focused on considering legislation to address a potential decline in energy production to mitigate the U.S. becoming more dependent on foreign sources. And yet with the shale gas boom, the International Energy Administration recently projected that the U.S. will become “a net exporter of natural gas by 2020” and “almost self-sufficient in energy, in net terms, by 2035.”
Three developments in the past decade illustrate how natural gas has become a game changer in the U.S.
First, U.S. natural gas production increased by 27 percent from 2005 to 2011, with production from shale gas increasing by 947 percent due to a combination of horizontal drilling and hydraulic fracturing.
Second, proved reserves of U.S. dry natural gas experienced a 58 percent increase going from 192.5 trillion cubic feet in 2004 to 304.6 trillion cubic feet in 2010.
Third, the annual average price of natural gas declined by 55 percent from 2005 to 2011.
Increased production, of course, has been good news for the energy sector, including in terms of jobs and business growth. Key energy sectors have far out-performed the overall economy. Nowhere has this change been more noticeable than in the small businesses in the energy sector.
Consider that while U.S. total employment fell by 3.7 percent from 2005 to 2010 (employment and business numbers based on Census Bureau data), jobs grew by 27.6 percent in the oil and gas extraction sector; by 15.1 percent in the drilling oil and gas wells sector; by 38.5 percent in the support sector for oil and gas operations; by 47 percent in the oil and gas pipeline and related structures construction sector; and by 62 percent in the oil and gas field machinery and equipment manufacturing sector.
And what about the number of businesses (with employees), including small firms?
U.S. total employer firms actually declined by 4.2 percent from 2005 to 2010, including a 3.7 percent decline in firms with less than 20 workers. But business growth occurred in key energy industries.
The number of oil and gas extraction employer firms grew by 3.1 percent, including 2.5 percent among firms with less than 20 workers; drilling oil and gas wells employer firms by 7.2 percent, including growth of 4.7 percent among firms with less than 20 workers; and oil and gas operations support firms by 24.5 percent, with that 24.5 percent growth rate matched among firms with less than 20 workers.
In fact, small firms overwhelmingly populate these energy sectors. For example, businesses with less than 20 workers came in at 91.3 percent of oil and gas extraction employer firms; 80.4 percent of drilling oil and gas wells employer firms; 84.7 percent of oil and gas operations employer firms; 63 percent of oil and gas pipeline and related structures construction employer firms; and 60.3 percent of oil and gas field machinery and equipment manufacturing employer firms.
Quite simply, energy is big business for small business.
Looking ahead, the opportunity exists for exporting LNG, given the differential in natural gas prices in the U.S. versus elsewhere in the world, and rising global demand.
Expanded demand for U.S. natural gas in international markets will result in greater U.S. natural gas production, with increased investment, gross domestic product growth, rising incomes, small-business expansion and more jobs being among the benefits.
As the administration and Congress explore the issue of whether to expand, LNG exports guided by market forces mean further expanding opportunity for small and midsize businesses to be created, to grow and to create jobs.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. He is the author of a new report titled “The Benefits of Natural Gas Production and Exports for U.S. Small Businesses.”